RPT-BREAKINGVIEWS-Tesla and SpaceX are ideal trade war hostages

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

By Robert Cyran

NEW YORK, Feb 5 (Reuters Breakingviews) - While many trade partners sparring with the administration of U.S. President Donald Trump can’t go pound-for-pound with the world’s largest economy, they can make their counterblows hurt. Just look at Elon Musk, boss of $1.2 trillion electric-car maker Tesla TSLA.O and $350 billion SpaceX, as well as right-hand man to the White House. Right now, that makes his companies a tempting target.

That risk became more concrete amid a last-minute scramble over proposed 25% tariffs on Mexican and Canadian goods. After issuing executive orders to raise the levies on Feb. 1, Trump pulled back days later with a one-month pause. But Canada offered a preview of the blowback.

Politicians immediately singled Musk out. Ontario Premier Doug Ford said he would rip up a $68 million contract with Starlink, SpaceX’s satellite communications service. Chrystia Freeland, a Canadian member of parliament seeking to become Prime Minister, told the Canadian Press that there should be a 100% tariff on Tesla’s cars. Plans for retaliation were paused, at least until the next spat.

It’s an obvious way to sap U.S. will for a trade war. Musk donated around $250 million for Trump’s re-election, while his cost-cutting efforts at the Department of Government Efficiency continue apace, despite threatening multiple crises.

Soaring valuations amplify the vulnerability. Tesla is valued at 11 times estimated 2025 revenue despite shrinking sales, especially in markets where subsidies have ended, indicating its sensitivity to policy changes. Moreover, investors expect big things from the company’s White House connection: the stock is up over 50% since the day before the U.S. presidential election. As a government contractor subject to a thicket of regulations, SpaceX similarly could benefit.

Yet both companies depend heavily on sales elsewhere. Canada only has 12% as many people as the U.S., but they buy more EVs. Assume Tesla reaps roughly $7 billion of sales there, or 15% as much as at home. That’s worth $78 billion on Tesla’s multiple. Other countries carry bigger sticks, like China, which accounted for some 20% of sales last year.

Privately held SpaceX’s $350 billion valuation hinges on its capital-intensive Starlink service. That means, once it pays back its costs, each extra sale becomes much more profitable. Research service Quilty Space estimated the company generated $3.8 billion of EBITDA last year, on $6.6 billion of sales. Canada represents over 10% of customers, according to TMF Associates. Eliminating those sales could hit an even bigger share of profit.

Investors have assumed that Musk’s position will lead to some significant change in the value of his companies. Problem is, they’re forgetting that this change could be negative.

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CONTEXT NEWS

U.S. President Donald Trump suspended his threat of steep tariffs on Mexico and Canada on Feb. 3, agreeing to a 30-day pause. The U.S. imposed an additional 10% tariff on China on Feb. 4.

Ontario Premier Doug Ford said the province would retaliate against the U.S. through various measures, including by eliminating a $68 million contract with Starlink, the satellite communications service run by SpaceX. Retaliatory measures were paused when the U.S. delayed implementing the tariffs on Canada.

On Jan. 31, Canadian MP Chrystia Freeland said Canada should target Tesla with a 100% tariff on its vehicles in an interview with the Canadian Press. Elon Musk, a political ally of the White House, is CEO of both Tesla and SpaceX.